Tue, Jun 24, 2008 - Page 12 News List

China Airlines forms tie with PRC carrier

By Irene Shen and Yu-huay Su  /  BLOOMBERG

A China Southern Airlines aircraft is pictured at Capital Airport in Beijing yesterday. Taiwan's China Airlines and China Southern signed a memorandum of cooperation yesterday, allowing them to represent each other's businesses in passenger, cargo, maintenance and ground handling operations.

PHOTO: EPA

China Airlines (華航) may consider an equity tie-up with a Chinese carrier because of record fuel prices and the easing of a 59-year-long restriction on flights across the Taiwan Strait.

“It’ll be an option in the future,” CAL chairman Ringo Chao (趙國帥) said on Sunday in an interview in Guangzhou, China, adding that no talks are under way at present. “Surging fuel costs are making life difficult for all airlines.”

Chinese and Taiwanese airlines have begun forming ties as they prepare to start limited weekend services across the Strait next month.

Chao is in Guangzhou to sign a deal with China Southern Airlines Co (中國南方航空), the People’s Republic of China (PRC) biggest carrier, to cooperate in areas including maintenance and catering.

“They have their eyes on daily flights in the future, when competition will intensify,” said Charles Ma, an analyst at SinoPac Securities Co (建華證券) in Taipei, who has a “trading buy” rating on China Airlines.

“With alliances, they won’t engage in malicious competition and will be able to maintain ticket prices,” he said.

CAL is banking on the start of cross-strait services to help it post a profit this year, Chao said. The airline’s loss widened to NT$2.97 billion (US$97.7 million) in the first quarter from NT$2.43 billion a year earlier, weighed down by jet-fuel prices that have almost doubled in a year.

The airline is cutting about 10 percent of its flights and has raised surcharges in a bid to return to profit.

Still, it has no plans to cancel plane orders, Chao said.

EVA Airways Corp (長榮航空) will cancel about 5 percent of its passenger services from Sept. 1 to Dec. 1, spokeswoman Katherine Ko said on June 9.

Airlines will begin nonstop services between China and Taiwan on July 4. Taiwanese carriers will be able to make 18 round trips a week, as will Chinese airlines.

Cross-strait services could eventually account for as much as half as CAL’s profit if the market is fully liberalized, he added.

CAL and China Southern signed a cooperation accord yesterday.

Air China Ltd (中國國際航空) and China Eastern Airlines Corp (中國東航), the PRC’s second and third biggest carriers, have also said they want to cooperate with Taiwanese airlines.

CAL and its Mandarin Airlines (華信航空) unit will start passenger services to Shanghai, Beijing, Guangzhou and Xiamen next month. The two carriers will offer a total of 29 round trips across the Strait next month, CAL said last Thursday.

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